Will Major Bank Divestments Affect Hybrid Instruments?

Head of Research, BondAdviser

Simon Fletcher

Head of Research

Australian bonds & fixed income research

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<p>Ever since the Global Financial Crisis (GFC), funding costs in capital markets for both major and regional Australian banks have been steadily declining. This was first sparked by the Australian Government Guarantee Scheme which reduced the underlying risk in Australian authorised deposit-taking institutions (ADIs). In this post-GFC era, funding costs have broadly moved in line with changes in the RBA cash rate, which reached a record low of 1.50% in August 2016 and has since remained at its trough for 26 consecutive RBA meetings.</p>
<p>This insight explores the current technical environment for Australian major bank instruments against the regional banks, which have traditionally priced at a premium to the Big Four banks due to their significant capital and liquidity cushions. We delve into what is driving current valuations including reduced issuer premiums, whilst exploring the possibility of regional banks pricing below the majors in the face of significant headwinds such as the Banking Royal Commission.</p>

Ever since the Global Financial Crisis (GFC), funding costs in capital markets for both major and regional Australian banks have been steadily declining. This was first sparked by the Australian Government Guarantee Scheme which reduced the underlying risk in Australian authorised deposit-taking institutions (ADIs). In this post-GFC era, funding costs have broadly moved in line with changes in the RBA cash rate, which reached a record low of 1.50% in August 2016 and has since remained at its trough for 26 consecutive RBA meetings.
This insight explores the current technical environment for Australian major bank instruments against the regional banks, which have traditionally priced at a premium to the Big Four banks due to their significant capital and liquidity cushions. We delve into what is driving current valuations including reduced issuer premiums, whilst exploring the possibility of regional banks pricing below the majors in the face of significant headwinds such as the Banking Royal Commission.

Regionals Vs Majors: Could We See A Pricing Reversal?

Commonwealth Bank of Australia

Regionals Vs Majors: Could We See A Pricing Reversal?